Taxability of Expatriate Salary:

Salary paid to Expats deputed in India engaged by an employer of the other Contracting State is taxable in India and the primary liability to pay tax vests with those expatriate employees working in India. Certain relaxation is provided in the relevant Articles under the head ‘Dependent Personal Services’ wherein the tax liability arises only when the expatriate employee stays in India for not less than 183 days during the previous year.

TDS on Expatriate Salary:

The Indian Income Tax Act casts a responsibility on the employer of expats irrespective of its residential status to deduct tax at source on the salary paid for expats working in India.

Foreign companies operating in India must deduct TDS (tax deducted at source) even on salaries paid abroad to their expatriate employees for services rendered in India, the Supreme Court has ruled.

Where salary is payable in foreign currency, the amount of tax deducted is to be calculated after converting the salary payable into Indian currency at the telegraphic transfer buying rate as adopted by State Bank of India on the date of deduction of tax (Rule 26) read with Section 192(6).

However, the liability of deducting tax at source is in the nature of vicarious liability, which pre-supposes existence of primary liability. The said liability is a vicarious liability and the principal liability is on the person who is taxable.

Engagement of OSS Vendors whether Indian Companies liable for TDS:

When a company in India engages services of OSS Vendor and the OSS vendor deploys its own Support Staff in India they are treated as expatriate/ expats. The responsibility to deduct tax for salary payments to expats is the responsibility of the OSS vendor.

The Indian Company has no responsibility to deduct tax on salary payments made to the expats of the OSS vendor. Further there is no binding contract between the Indian Company and the expats, no payments were made directly by the Indian Company to the expats, hence the Indian Company cannot deduct TDS for the salary payments made by the OSS vendors to the expats engaged by them.

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Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

Author Bio

Qualification: CA in Practice
Company: N P Mathi Lingan & Associates
Location: Chennai, Tamil Nadu, India
Member Since: 08 Dec 2020 | Total Posts: 1
A member of the Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India (ICSI), a qualified Cost Accountant (ICMAI) and a post graduate in MBA (Finance) & MCA (Computer Applications) with over year’s of rich experience in various industries, have handled s View Full Profile

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One Comment

  1. vswami says:

    “TDS on Expatriate Salary:
    The Indian Income Tax Act casts a responsibility ON THE EMPLOYER IRRESPECTIVE OF ITS RERSIDENTIAL STATUS to deduct tax at source on the salary paid for expats working in India.”

    Authority !- Explain why so, despite the overriding principle of ‘extra territorial ‘ jurisidiction ? Look up case law , for or against – wprt the recent itat orders , etc., on taxability of perq., etc., e.g. ESOP/ SWeat EQuity’ and CApital GAins !

    courtesy

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